SOUTH AMERICAN ENERGY MARKETS WEEKLY ROUNDUP (June 15-21): Bolivia’s troubled YPFB is embroiled again in an alleged corruption scandal

South American Energy Markets (SAEM) now publishes a weekly roundup of the top-five stories including analysis affecting energy markets in the region with links. The roundup includes all the major web dailies of South America and other websites that write about the region’s energy markets. SAEM Weekly Roundup appears on Mondays and is published by noon London time.

Monday, June 15, 2009

BOLIVIA/NATIONALIZATION WOES

After the sacking of YPFB president Santos Ramirez in the end of January due to corruption allegations that involved the murder of an energy executive, the state-owned energy company is facing new accusations of alleged corruption and financial mismanagement. YPFB’s transport division head, Gildo Angulo, denounced the company president Carlos Villegas of overpaying $200 million for transporter Transredes when he was hydrocarbons minister, writes Los Tiempos of Cochabamba. Angulo said that when the state paid $250 million to nationalize the company last year, it did not take into account the $200 million debt it had. COMMENT: How can anyone buy a company or nationalize it without taking into account such an important matter? I am certain that Villegas must have known but accepted to assume Transredes’ debt. Usually in Bolivia one has to do a bit of searching behind the news to find out what is really going on. Angulo’s accusations could be part of a wider power struggle to oust Villegas from YPFB, a company which has the onerous task of running and overseeing Bolivia’s energy sector, is suffering from a huge credibility-leadership vacuum after Ramirez was sent to jail.

The undercurrents and power struggles in YPFB must be accentuated by the inefficiency of the company, its lack of financial resources and, most importantly, by its chronic shortage of qualified staff. As everyone knows, energy in general and gas in particular are huge political issues in Bolivia that can send the country into turmoil.

BRAZIL/LIQUEFACTION PLANT

Petrobras’ energy and gas director, Maria das Gracas Foster, was quoted as saying in Rio de Janeiro daily O Globo that the energy company is studying plans to build a liquefaction plant in the next decade 300km offshore in the promising Santos Basin. Gracas Foster said that the LNG from the plant could be earmarked for the domestic and export market. COMMENT: It has been known for some time that one of the ways that Petrobras could tap the enormous gas reserves in the Santos Basin is by building an offshore liquefaction terminal. This makes technical sense because, apart from extracting the gas from ultradeep waters, there would be the logistic challenges of transporting it to shore by pipeline and compressor stations.

Energy self-sufficiency is vital to Brazil since many of the top energy executives remember to well how the country fell prey to the oil crises years of the 1970s. The country has made an aggressive push to reduce reliance on oil with the help of ethanol. Therefore, whenever there are political rumblings in Bolivia, which can put into jeopardy its gas supplies from the landlocked country, there is great concern. Brazil, which imports about half of its gas from Bolivia, is today self-sufficient in oil and it will be only a matter of time when gas will follow.

The only big questions about drilling in the pre-salt crust of the Santos Basin is the price of global energy prices. Tapping the oil and gas wealth in ultradeep waters will be a lucrative undertaking requiring advanced technology.

ARGENTINA-BOLIVIA/GNA GASLINE

Argentine state-owned energy company Enarsa and its Bolivian counterpart, YPFB, announced their commitment to building the GNA gasline, which aims to transport 16 million cu m/d of gas to Argentina next year, reports Buenos Aires daily Clarin. The GNA was originally launched in 2004 by Techint and the Argentine government. Supply and political uncertainty in Bolivia, however, has kept the 1,500km line shelved. COMMENT: There are two matters that make this affirmation in Clarin, quoting Bolivian Hydrocarbons Minister Oscar Coca, odd. Can such a long pipeline be operational next year even if “feasibility studies are [still] being carried out,” according to Coca? The original pipeline was supposed to extend from Salta province in northeast Argentina to Santa Fe and link up with the turnkline grid. Today we do not have the faintest idea what GNA pipeline is the Argentine and Bolivian government are speaking of. Is it the old project or a much watered-down version that will extend from the western province of Salta to Misiones, in the northeast?

Another big question is if the Argentine government has the capital to embark on such a project. The original GNA line was seen costing about $2 billion. Since there are hardly any markets for gas in provinces such as Misiones, Corrientes, Chaco and Formosa, why does the government want to build a pipeline to these provinces in the first place? I think we are going to hear a lot of announcements by Argentine and Bolivian authorities in the future about when construction of the line will start. It is highly doubtful, however, that construction will ever begin.

VENEZUELA/PdVSA WOES

President Hugo Chavez denied in Spanish news agency EFE that the state-owned energy company, PdVSA, was on the verge of bankruptcy. He said that the lie was fabricated by the “bourgeoisie” to show to the people of Venezuela that the “socialist project” in Venezuela was impossible to attain. Chavez said that PdVSA became last year the fourth-largest oil company in the world from eighth place the previous year. “The real truth,” he said, “is its role in the world but the oligarchic media aims to hide this fact. What is in bankruptcy is capitalism.” COMMENT: The first question one must ask if a state-owned company in Venezuela can become bankrupt. If it has cashflow problems due to its hefty investments inside and outside the country in the face of lower oil prices, it points to a growing insolvency.

Chavez is not the first Venezuelan head of state to ride on high global oil prices. After Venezuela profited handsomely from high oil prices in the 1970s, it went into crisis the following decade as global prices plummeted. So it is not a question of PdVSA going belly up but the political impact that oil prices will have on Chavez’s government. His future, as that of his socialist Bolivarian revolution, hinges on capitalist laws such as supply and demand.

PERU/GAS RESERVES

Gaffney, Cline & Associates (GCA) have certified Camisea’s and Pagoreni’s proved gas reserves at 17.4Tcf, reports state-owned news agency Andina, quoting Peru’s ministry energy and mines. GCA said that Camisea alone has minimum and maximum proved reserves of 13.6Tcf and 18.5Tcf, respectively. Reserves at adjacent Pagoreni have been estimated at about 3Tcf. “We are doing everything necessary for the domestic market to be supplied [with gas],” Gustavo Navarro, hydrocarbons division head of the ministry of energy, was quoted as saying in the local media. COMMENT: In the face of rocketing demand, the best present that can be made to the government of President Alan Garcia is more proved reserves. Skeptics and political opponents of the government have raised a big debate in Peru over whether there is enough gas to supply the Peruvian market in the future. Some lobby groups such as the engineering association CIP have asked the government to halt future exports through Peru LNG in order to ensure supplies.

One of the biggest problems in the Peruvian gas market are cheap wellhead prices ($1-$2/MMBtu) that fuel consumption and energy inefficiency by thermal plants. During 2004-08, gas consumption has rocked by 40%. Gas transporter TGP is presently expanding throughput capacity of the Camisea-Lima pipeline to 450 from 290 million cu ft/day. At present wellhead prices it will not be long before TGP will be obliged to raise throughput capacity again.

The present situation reveals poor energy planning. Can gas in Peru bring the same political hiccups as in Bolivia? This is a possibility. Looking at Peru’s history in the past fifty years, nationalism and political turmoil are no stranger to the country.

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